NJ Cap on Sewage Costs Drives Constitutional Challenge

TRENTON, N.J. (CN) – It’s a dirty and thankless job, processing raw sewage. Now thanks to a new law that caps how much wastewater treatment authorities can bill municipalities, one sewage authority says it is also a job that could become economically unsustainable in New Jersey.

Represented by the firm Birdsall & Laughlin, the Two Rivers Water Reclamation sued the state Wednesday in U.S. District Court, taking aim at a regulation that passed both houses of the New Jersey Legislature in January.

Set to apply to budget cycles later this year, the law sets a cap of 2 percent annually on the amount sewerage authorities can increase their bills to customers, regardless of how much sewage is processed or how much is spent on capital expenditures and other costs.

The new law allows authorities to apply to local finance boards to increase their rents, rates or fees to offset reduction in sewage services. However, it does not exempt operational or maintenance costs from the 2 percent cap.

Two Rivers, which services half a dozen municipalities in New Jersey, contends in its 20-page filing that the new act is “an unfair, unconstitutional solution in search of a legitimate governmental problem.”

Like its competitors, Two Rivers used to charge municipalities to transport and treat sewage under a billing system first enacted in 1968 and last affirmed in 2015.

It claims that an individual town’s sewer charges can vary greatly from year to year under those contracts, depending on the total sewage treated.

But enactment of a hard 2 percent cap, regardless of usage, could cost sewage authorities millions of dollars and send them into bankruptcy, the complaint states.

“TRWRA cannot simply bill whatever it chooses,” Birdsall & Laughlin attorney David Laughlin said in an interview. “TRWRA is a public entity that is required, by the Sewerage Authorities Law, to collect revenues sufficient to fully fund the services it provides.”

The new regulation “unconstitutionally relieves the customer towns from their contractual obligations and renders the contract supported billing method unlawful,” Laughlin added.

Though the law took effect earlier this year, the lawsuit says Two Rivers would have lost more than $10 million in fees if the law had been in effect since 2010. “That is a formula which will lead directly to the bankruptcy of the authority, placing the environment at great risk of pollution,” the complaint states.

Noting that a single down year resets the ‘hard cap’ for the following year at the lesser amount, plus the 2 percent, Two Rivers also says the regulation allows municipalities to reap “windfalls” after years in which they are charged less for sewage services.

To remedy potential shortfalls, sewerage authorities might pass along costs from municipalities with higher sewerage services to those with less usage.

Two Rivers wants the law ruled unconstitutional under the Contracts Clause, which prevents states from passing laws interfering with contracts.

The U.S. Supreme Court has held that states can change contracts only in cases involving a public interest or a “broad and general social or economic problem.”

Some infrastructure groups, such as New Jersey Future, had opposed the new law, saying it would hamper the ability of sewerage authorities to raise funds to improve wastewater systems and could actually raise prices through more frequent emergency repairs.